Blunt tariffs undermine efforts to reshore high-tech manufacturing
Advanced manufacturing is particularly reliant on imported inputs and equipment.
President Trump has made the reshoring of advanced manufacturing industries a top priority in his second term. So far, his primary vehicle for achieving this goal has been to impose broad-based tariffs on imports from most major trading partners.
But blunt, untargeted tariffs — such as the flurry of blanket tariffs on imports from dozens of countries announced on July 31 — are likely to backfire, raising costs for American factories and slowing reindustrialization.
The reason is simple but too often overlooked by policymakers: High-tech manufacturers are also big importers.
By combining Bureau of Economic Analysis data on purchases of “intermediate inputs” (the supplies, components, and services that firms use to produce final goods) with estimates of investment in “capital equipment” (the tools and machinery employed in the production process) to produce a proxy for import reliance, we demonstrate below that advanced manufacturing is particularly reliant on production inputs and equipment from abroad.1
The Acute Vulnerability to Tariffs of Advanced Manufacturers
All domestic manufacturers buy at least some of the intermediate inputs and capital equipment they need to make their products, but high-tech manufacturers source a higher share of those inputs and equipment from abroad.
In a 2016 report, the Bureau of Labor Statistics defined high-tech industries as those having high concentrations of workers in STEM (Science, Technology, Engineering, and Mathematics) occupations. Similarly, we classified six manufacturing industries that employ at least twice the national share of STEM workers in 2023 as high-tech manufacturing:
Petroleum & coal products
Computer & electronic products
Chemical products
Machinery
Electrical equipment, appliances, & components
Other transportation equipment
We plot the six industries in Figure 1, showing their STEM worker share of employment and their import share of inputs and capital:
Computer and electronic products manufacturers import 37 percent of their intermediate inputs and capital equipment. The high tariffs on semiconductors threatened by the Trump administration, whose stated aim is to protect this industry, would instead represent substantially higher costs for it, harming both its workers and the American consumers who buy its products.
Chemical manufacturers — primarily pharmaceutical and petrochemical firms — import 33 percent of their inputs and equipment. Transportation equipment manufacturers — producers of ships, trains, planes, and military vehicles — import 27 percent.
Likely in recognition of advanced manufacturing’s dependence on global supply chains, the Trump administration, in its recent trade deals with Japan and the European Union, has agreed to tariff barriers on drugs, chips, and aerospace parts that are lower than it had previously announced. These exemptions, however, have not yet reduced customs duties on inputs and equipment in these industries to their pre-2025 levels. Pharmaceutical imports from the EU may still face tariffs of 15 percent, for example, while chips from countries other than Taiwan and Japan also remain subject to steep tariff increases.
A Greater Reliance on Allies
While competition with and reliance on China is one major reason for the Trump administration’s embrace of tariffs as a way to reindustrialize, American firms in advanced manufacturing industries actually buy far more intermediate inputs and capital equipment from other, friendlier countries:
High-tech manufacturing firms in the United States source just 2.2 percent of their inputs and equipment from China.2
The EU’s share of advanced manufacturing inputs and equipment supplied to the United States is nearly two and a half times as high, at 5.4 percent.
Canada and Mexico together account for 13.2 percent, in part due to energy imports.
Steep tariffs on these friendlier countries or blocs are therefore more likely to raise costs in the very industries that the administration wants to reshore.
Within the advanced manufacturing industries that buy the most intermediate inputs and capital equipment abroad, we also find that Canada and the European Union are much more important trading partners.
Specifically, American firms making oil and coal products purchase more than a fifth of their intermediate inputs (largely crude oil) and equipment from Canada. These firms meanwhile import just 0.2 percent of the inputs and equipment from China.
And in chemical manufacturing, nearly 11 percent of all inputs and equipment are sourced from EU countries, totaling $37.3 billion,3 nearly half of which are drug precursors and medical R&D materials. China ranks third as a supplier to the American chemical industry, accounting for 2.7 percent of imported inputs and equipment, but its imports skew heavily toward basic chemicals like plastic and synthetic dyes rather than pharmaceutical drugs.
Chinese firms do, however, play a significant role in supplying American computer and electronics manufacturers, selling 5.5 percent of the components and equipment they use, second only to Mexico. Further escalating the trade conflict with the People’s Republic would thus still carry significant costs.
Even in industries of which Chinese inputs and equipment constitute a relatively small overall share, the PRC controls chokepoints in highly specialized supply chains. Trade negotiations between the United States and China remain bogged down, thanks in part to the PRC’s withholding of critical minerals from American defense companies. China’s dominance over this chokepoint is a major vulnerability for American national security, and there are similar examples across other kinds of manufacturing.
The Geographic Concentration of Advanced Manufacturing Trade Shocks
Using proxy estimates constructed from state-level input-output tables produced by the Environmental Protection Agency and state import data from the Census Bureau, we find that the Western United States has the highest share of imported inputs and equipment for advanced manufacturing, at 18.4 percent, out of any region in the country.4 (We also looked at the Northeast, South, and Midwest. See Figure 4.)
Utah and Washington have long specialized in aerospace, while Oregon, Arizona, and New Mexico have become centers of semiconductor manufacturing. The West also maintains oil refining capacity of 3.2 million barrels per day, well above its 1.7 million barrels per day of local production. Much of the gap is made up with imports.
In the Northeast, 15 percent of components and equipment for advanced manufacturers is imported, largely driven by the region’s globally integrated pharmaceutical firms. High-tech manufacturers in the Midwest import the lowest share of the components and equipment they use, 10.7 percent.
Examining source countries for advanced and non-advanced manufacturing imports by region reveals that the leading supplier of inputs and equipment is often the nearest large economy. For example, the South imports more from Mexico, while the West relies more heavily on East Asian countries. This pattern follows the so-called “gravity model” of trade, which holds that places in a country are more likely to trade with their closest foreign neighbors.
There are interesting exceptions to the gravitational pattern. Imports from EU countries make up a larger share of manufacturing inputs and equipment in the Midwest than in the South, despite the Midwest’s lack of direct Atlantic access. This reflects the longstanding specialization in aerospace and pharmaceuticals. Airbus, Europe’s leading passenger jet manufacturer, maintains a presence in Wichita, Kansas, a historic aerospace hub, while Indianapolis-based Eli Lilly sources heavily from Ireland. The recent trade framework between the United States and European Union waived tariffs on aerospace parts and generic drug precursors, yet Midwestern medical manufacturers still face up to 15 percent tariff rates on other materials.
We can also estimate manufacturers’ reliance on imported inputs and machinery at the state level. Canadian crude oil is the top imported input in 15 states, concentrated in the Midwest and Mountain West.5 Midwestern food manufacturers also rely heavily on machinery and agricultural products imported from Canada, influenced by both economic specialization and geographic proximity.
In four states with major automotive manufacturing hubs — Michigan, Kentucky, Alabama, and South Carolina — European car parts and machinery are the largest category of manufacturers’ imports. Car plants with close EU ties, such as the Mercedes-Benz factory in Tuscaloosa, AL, and the BMW plant in Spartanburg, SC, are both major drivers of local economic growth and vulnerable to sloppy tariffs that don’t exempt the parts and equipment they need.
Tennessee stands out as the only major state whose manufacturing industry is highly dependent on China for components. In addition to being the fourth-largest importer of Chinese goods out of all the states, Tennessee’s automotive plants are especially reliant on Chinese inputs and are likely to be among the hardest hit if trade tensions with Beijing escalate.
Some of the states’ international connections are relatively recent and reflect America’s ongoing efforts to strengthen its critical manufacturing capability. In 2024, imports of semiconductor inputs and equipment from Taiwan surged in Oregon compared to previous years, showing the expansion of semiconductor production in the state.
High and broad tariffs may result in American manufacturers sourcing more inputs domestically over time. But many inputs will simply become more expensive, making domestic manufacturers less competitive globally. That, in turn, will raise prices for consumers and suppress workers’ inflation-adjusted pay.
Durably reshoring high-tech manufacturing will ultimately require a ruthless focus from policymakers on boosting domestic manufacturers’ competitiveness and productivity. Blunt, ill-considered tariffs without exemptions for components, materials, and equipment used by manufacturers will instead raise costs and undermine the very goal they seek to advance.
View the Github with code for replicating this analysis and an in-depth explanation of our methodology here.
Most automotive vehicles and parts have end-use codes that do not distinguish between final consumption and use as intermediate inputs. All analyses in this article therefore include only those automotive commodities explicitly classified as industrial supplies or capital goods, so they correspond with intermediate inputs and capital equipment classifications in the input-output tables.
U.S. Census Bureau classifies all imported goods produced by foreign biological manufacturing (NAICS 325414) as consumer goods under end-use codes. However, because these goods include cell cultures, vaccine precursors, and animal plasma used in pharmaceutical production, we manually reclassified them as industrial inputs.
The state-level data covers all manufacturers, not just high-tech manufacturers.
Impressive essay.